Three disadvantages of savings accounts are minimum balance requirements, lower interest rates than other accounts/investments, and federal limits on saving withdrawal. If you're fortunate enough to have extra money for long-term goals, first, pat yourself on the back!
Low interest: Getting a low return on your money is a key disadvantage of a savings account. And the cost of relying on a savings account for your long-term financial benefit can be higher than you think. “At least you aren't losing money when it's in the bank,” some might argue.
Savings accounts are actually very low risk, as long as your bank is FDIC insured. The FDIC insures each depositor, meaning anyone who deposits money, for up to $250,000, per insured bank.
Account restrictions: Savings accounts often have restrictions, such as minimum balance or deposit requirements, withdrawal limits, and limited deposit or withdrawal methods. For example, to get a certain APY, you may need to deposit a minimum amount in the account.
There is no risk to putting your money in a savings account. The interest you earn by keeping money in a savings account will add up over time. Right now, rates are relatively low, but a low interest rate is better than none. Seeing your money grow in a savings account will encourage you to continue to save.
If you have money in a traditional savings account, chances are you're not earning significant money in interest given today's low rates. But any interest earned on a savings account is considered taxable income by the Internal Revenue Service (IRS) and must be reported on your tax return.
For more than 200 years, investing in real estate has been the most popular investment for millionaires to keep their money. During all these years, real estate investments have been the primary way millionaires have had of making and keeping their wealth.
A common guideline for emergency savings is to set aside enough for three to six months' worth of expenses. But you might choose to save nine to 12 months' worth of expenses if you're worried about a prolonged emergency draining your savings.
Another red flag that you have too much cash in your savings account is if you exceed the $250,000 limit set by the Federal Deposit Insurance Corporation (FDIC) — obviously not a concern for the average saver.
Standard financial advice says you should aim for three to six months' worth of essential expenses, kept in some combination of high-yield savings accounts and shorter-term CDs.
High-Yield Checking Accounts
There are high-yield checking accounts that offer better interest rates than savings accounts. Some of these checking accounts offer up to a 2% annual percentage yield, in contrast to lower savings account rates.
A long-standing rule of thumb for emergency funds is to set aside three to six months' worth of expenses. So, if your monthly expenses are $3,000, you'd need an emergency fund of $9,000 to $18,000 following this rule.
Individuals who deposit cash above Rs. 2.5 lakh and senior citizens who deposit cash above Rs. 5 lakh may be scrutinised. Any amount within the specified limit will be excluded from scrutiny considering that the money is from household savings, cash withdrawals, earlier income, and so on.
The $10,000 threshold was created as part of the Bank Secrecy Act, passed by Congress in 1970, and adjusted with the Patriot Act in 2002.
One disadvantage of a regular savings account is that it has low interest rates.
There's no legal limit on how much money you can keep at home. Some limits exist with bringing money into the country and in the form of cash gifts, but there's no regulation on how much you can keep at home.
Savings and checking accounts are not listed on credit reports because no borrowing or debt is involved. Applying for and opening a savings account won't generate any information that shows up on your credit report, and neither will the deposits and withdrawals you make.